Securities Lawyers Blog
Governor Andrew M. Cuomo announced on March 17, 2014, that AXA Equitable (AXA) agreed to a consent order to pay a $20 million fine to the New York Department of Financial Services (DFS) for violations relating to certain variable annuity products. The DFS investigation uncovered that AXA made changes to certain variable annuity products that limited potential returns for existing customers without providing adequate notice to New York. New York stated that AXA’s omissions limited the DFS’ ability to protect consumer by requiring existing customers to affirmatively “opt in” to the altered product rather than remaining in that investment by default. According to New York, AXA’s actions affected tens of thousands of New Yorkers with variable annuity products at AXA.
A variable annuity is complex bundled financial and insurance product. A variable annuity is a contract with an insurance company where the insurer agrees to make periodic payments to you and the investor chooses the investments made in the annuity. The value of your variable annuity will vary depending on the performance of the investment options chosen. The investment options for a variable annuity are usually mutual funds.
The Securities and Exchange Commission (SEC) released a publication entitled: Variable Annuities: What You Should Know. In the publication, the SEC encouraged investors considering a purchase of a variable annuity to “ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.” Often times the benefits of variable annuities are outweighed by the other provisions including surrender charges, mortality and expense charges, management fees, and rider costs. Variable annuities are also high sales commission products for financial advisors and sometimes advisors push these products on persons who do not need them or cannot benefit from them. For example, since an IRA account is already tax deferred it makes little sense to use an IRA account to hold a variable annuity investment.